The debenture rate
is only 3.62% but note rate is 3.678% and the effective yield is a whopping
5.698%.

________________________________________________

AHEAD
OF THE YIELD CURVE

Is
the use of the word moderate an example of
plurisignification?

Two
months ago at its July meeting on monetary policy, the Federal Reserve said the
economy “expanded at a MODEST pace” while back in June it had said that the
economy “has been expanding at a MODERATE pace.”

Last
week the Federal Reserve said that we are now back to a MODERATE pace. Yes,
“economic activity has been expanding at a moderate
pace!”

What
changed?

One
of the Fed’s favorite gauges of the economy is the capacity utilization rate
which measures how much plants and factories are being used. The Federal
Reserve watches capacity utilization rates to see if production constraints are
threatening to cause inflationary pressures. Bottlenecks or shortages often lead
to inflationary pressures that would drive prices even higher. Several
analysts have pointed to a rate between 81% and 82% as a tipping point over
which inflation is spurred.

Last
week the Fed reported that capacity utilization for total industry increased 0.2
percentage point in August to 77.8 percent.

This
is the first increase in capacity utilization in SIX months! It is now only 0.6
percentage point above its level of a year earlier.

Here
is what capacity utilization rates have done:

1997-
83.6

1998-
83.0

1999-
82.4

2000-
82.6

2001-
77.4

2002-
75.6

2003-
74.6

2004-
79.2

2005-
80.7

2006-
82.4

2007-
81.5

2008-
79.9

2009-
66.9

2010-
74.8

2011-
76.7

2012-
79.0

2013-
77.8

What does all this
mean?

I don’t
know.

While capacity
utilization has barely moved up in the last year, it is up 10.9 percentage
points from the record low set in June 2009. It is still 2.4 percentage points
below its long-run (1972-2012) average.

After the Fed
moved its assessment of the economy’s growth back to “moderate,” from the
“modest” language it used in July, Treasury bonds rallied the most in almost two
years.

30 year Treasury
bond yields fell eight basis points to 3.75 percent. This comes on the heels of
the 30 year bond auction that drew a bid-to-cover ratio, which gauges demand by
comparing total bids with the amount of debt offered, of 2.4, versus 2.11 at the
August sale. The 30 year Treasury yield had climbed to 3.94 percent on August
22, the highest since August 2011.

It
would appear that the Federal Reserve thinks that interest rates are fine right
now.

__________________________________________OFF
BASE

The
word fine is an excellent example of
plurisignification.

This
is the word women use at the end of any argument when they feel they are right
but can't stand to hear you argue any longer.